Pakistani urea producers increased prices following gas prices growth

Pakistani urea manufacturers, led by Fauji Fertilizer Bin Qasim Limited and followed by Engro Fertilizers, have initiated a series of price hikes for urea fertilizer. The move is in direct response to the recent sharp rise in gas prices implemented by the federal government of Pakistan. Fauji Fertilizer Bin Qasim Limited has raised its prices by PKR 1350 per bag ($4.84), while Engro Fertilizers has increased its urea prices by PKR 785 per bag, inclusive of Federal Excise Duty (FED). This adjustment comes on the heels of a staggering 175% increase in gas prices for the fertilizer sector on the networks of Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas Company Limited (SSGC). Despite this, Engro’s urea price adjustment marks only a 23% increase.

Notably, gas tariffs for fertilizer companies operating on the MARI Petroleum Company network remain subsidized, leading to significant price disparities across different urea products. This discrepancy has enabled middlemen to garner excessive profits ranging between PKR 80 – 100 billion. Engro Fertilizers, in a move to support government efforts to aid farmers, has refrained from increasing the selling price of imported urea.

The recent price adjustments by FFBL and Engro Fertilizers are a consequence of the government’s decision to significantly raise gas input costs for fertilizer manufacturers on the SNGPL and SSGC networks. Feedstock gas prices for these manufacturers, which account for 60% of the total production capacity, have escalated from PKR 580/mmbtu ($2.08) to PKR 1,597/mmbtu ($5.72). Meanwhile, the remaining manufacturers on the Mari network, contributing to 40% of the total capacity, continue to benefit from the subsidized rate of PKR 580/mmbtu.

This discrepancy in gas prices has led to multiple urea rates in the market, causing price distortions. Current market reports indicate that the urea prices of FFBL, Engro Fertilizers, and Fauji Fertilizer Company Ltd now stand at PKR 5489/bag ($19.67), PKR 4647/bag ($16.65), and PKR 3,767/bag ($13.50) respectively.

Experts warn that the government’s failure to standardize gas prices for all fertilizer manufacturers could result in missed fiscal targets and continued instability in urea prices for farmers. This instability has created opportunities for middlemen to realize excessive profits. By aligning the Mari network prices with those of other networks, the government could potentially harness additional revenue to finance targeted agricultural projects, thereby stimulating economic activity within the sector.

An industry analyst explained that the government should “equalize gas rates for the whole industry; otherwise, it will create distortion and go against the IMF’s suggestion of eliminating subsidies.” The bold strategy to reform the fertilizer sector by eliminating current gas price discrimination among the fertilizer players is expected to stabilize the urea market for the benefit of the farmers, support the government’s economic agenda, and attract new investments in the fertilizer industry.